Colorado Weed Industry In Free-Fall As Sales Plunge By $700 Million

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by Tyler Durden
Monday, Jun 10, 2024 - 11:20 AM

Colorado's cannabis market is in free-fall, going from peak revenues of $2.2 billion in 2020, to $1.5 billion just three years later. The drop has had a substantial impact on the state's economy - with cannabis tax revenues decreasing more than 30% over the past two years to just $282 million last fiscal year, Politico reports.

The causes are manifold, and include an oversaturated local market, regulatory burdens, and increasing competition from nearby states such as New Mexico and Arizona - two out of 24 states where weed is now legal, which may have been attracting consumers that would have previously made a border run to Colorado.

Tourists who once flooded the state for the opportunity to legally experience Rocky Mountain highs have largely disappeared as the novelty has worn off. Even Texans aren’t driving north to buy weed anymore, satisfied with the proliferation of intoxicating hemp products in their own state.

In fact, sales in Colorado's southern border counties have fallen nearly 50% from their 2021 peak.

What's more, the price of weed has plummeted thanks to a supply glut, going from nearly $1700 per pound to around $700. Meanwhile, there's been more than a 16% drop in the number of cannabis licenses issued over the past year, and 16% drop in cannabis-related jobs in the second year of job losses within the industry, suggesting the market is contracting.

A messy assortment of factors has led to the pioneering industry’s struggles. A supply glut caused weed prices to plummet in the wake of the pandemic. The spread of cheap, largely unregulated intoxicating hemp-derived products further heightened competitive pressures. And marijuana remains federally illegal, subjecting operators to sky-high taxes and costly regulations.

One wholesaler, Veritas Fine Cannabis, had 144 employees at their height. They're now down to just 21.

"We all overestimated the market," said CEO Jon Spadafora. "We all believed a little bit too much of our own PR."

In short, the rush to expand cannabis production vs. the changing dynamics of the pandemic made for a 'deadly combination' of oversupply and price compression - at a time when cultivators had invested in expansion such that all their capacity came online around the same time in 2021, according to Spadafora.

Another wholesaler, Native Roots, used to produce around 32,000 pounds of weed per year at their Denver cultivation facility. By mid the middle of last year, it had cut production in half, according to Jason MacDonald, who is in charge of production.

"We want to be careful to make sure that we don’t oversupply ourselves," he said.

Various stages of Native Roots Mothership cultivation facility are shown. Part of what helped Native Roots weather the market downturn is that it has 21 of its own dispensaries across the state. (via Politico)

"It’s like the wind in our cannabis sails in Colorado has just been sucked all the way out," Denver dispensary owner, Wanda James of Simply Pure, told the outlet.

Cannabis industry participants in other states are now holding Colorado out as a cautionary tale for other states where weed is legal - with one top New York cannabis official pointing to the dramatic downturn in Colorado as justification for regulators' hesitance to issue too many licenses at once.

"We’re a victim of our own success," said Jordan Wellington, a partner at Denver-based cannabis policy and public affairs firm Strategies 64. "New markets drawing investment away, new markets drawing purchasing away — all of these different things combined into the soup of the challenges [facing] Colorado."

Read the entire report here.